Singapore launches cyber risk pool, to be backed by ILS & reinsurance

29th October 2018 - Author: Artemis

The Finance Minister of Singapore has announced the launch of the world’s first commercial cyber risk pool, a facility for providing cyber insurance to corporate buyers in the Asia region that is expected to be backed by both insurance-linked securities (ILS) and reinsurance.Singapore has been pushing innovation in its insurance and reinsurance market for some years now, with recent efforts to foster the development of an insurance-linked securities (ILS) market in the region just one angle.

But the country is also focused on emerging risks as well and this announcement today shows that the nation is looking to break new ground in re/insurance, in ways that help to expand the availability of insurance and risk transfer coverage to the Asia Pacific region.

Singapore’s Minister of Finance Heng Swee Keat announced the launch of the cyber risk insurance pool at his opening speech to the attendees of the 15th Singapore International Reinsurance Conference today.

As the first commercial risk pool for cyber exposure in the world, the facility will perhaps demonstrate a model that could be repeated elsewhere.

The pooling of exposure and then use of efficient sources of reinsurance and capital markets funding, to back the risk, can enable the provision of larger policy limits for specific use-cases, something that is definitely required in the Asian region for cyber exposures, which are growing exponentially.

The cyber risk pool will be located in Singapore and has been established with the assistance of the Singapore Reinsurers’ Association and cyber specialist Peter Hacker, who was previously reinsurance broker Ed’s Group Chief Innovation Officer, but departed the broker to focus on his work and research at cyber boutique Distinction.Global.

The new cyber risk pool will commit up to US $1 billion of risk capacity, the Finance Minister said, and will be backed by capital from both traditional insurance or reinsurance and insurance-linked securities (ILS) markets to enable the provision of bespoke cyber coverage solutions.

“To date, twenty insurance firms have indicated their interest to participate in this pool, which would allow corporates in ASEAN and Asia to be protected against cyber-related losses,” Minister Heng Swee Keat explained.

He continued, “The cyber risk pool reflects Singapore’s standing as a specialty insurance hub, and our commitment to driving forward-looking insurance solutions to tackle new and emerging risks. I encourage you to consider participating in this joint effort, and to work together to develop better risk models to price cyber risks appropriately. With proper pricing, more corporates will be encouraged to take-up cyber risk protection.”

With Singapore working to establish itself as an ILS hub, the issuance of cyber catastrophe bonds to back a commercial cyber risk insurance pool would be a great way for the country to enter the ILS space.

Using a risk pooling facility’s indemnity losses as the trigger for a cyber cat bond is a use-case for ILS in cyber risk that could be viable, given the diversification within the pool will help to minimise exposures and the fact risks will also be shared with traditional re/insurance players.

Singapore has also had a focus on cyber risk analytics and modelling, thanks to its work to develop a cyber risk assessment framework that can support the underwriting and pricing of cyber risks.

Bringing this work together with the capacity of a cyber risk insurance facility and the backing of reinsurance and capital markets could create a compelling and effective risk pool that Asia’s large corporates can tap into, as cyber exposures grow.